Tracking the market and economic trends that shape your finances.

Banks hit by new round of foreclosure lawsuits

Massachusetts has sued the nation’s five largest mortgage servicers for allegedly pursuing illegal foreclosures and misleading troubled borrowers hoping to get loan modifications in that state.

In suing, Massachusetts Atty. Gen. Martha Coakley increases pressure on the banks, which are negotiating with a coalition of attorneys general in an effort to reach a settlement over the companies' foreclosure and mortgage servicing practices. The move could also widen a rift between the states involved in those talks and other states, including California, that believe those discussions are headed the wrong way.

In a statement, Coakley said the latest legal action was necessary because “the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law.” A representative for Coakley's office was not immediately available.

Iowa Atty. Gen. Thomas J. Miller, who is leading the negotiations with the banks, said in a statement that Coakley was not yet out of those talks.

“Attorney General Coakley informed me of her decision to file lawsuits against the banks. She also indicated that she’ll evaluate the joint state-federal settlement we’re negotiating, which we hope to reach soon,” Miller said. “Attorney General Coakley indicates that she is open to joining our settlement effort if the terms adequately address the needs of the people of Massachusetts. We’re optimistic that we’ll settle on terms that will be in the interests of Massachusetts.”

California Atty. Gen. Kamala Harris formally walked away from the negotiating table after meeting bank representatives face to face in Washington earlier this year -- concluding that what they were offering was not good enough for the Golden State. Since then, proposals to try to entice Harris back to the table have been floated as California is seen as a key to forging a strong settlement.

New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota have already signaled that they were unhappy with the proposed deal being discussed because of a legal release from liability being offered to the banks. New York and Delaware have been cooperating in their own probes separate from the coalition.

Coakley’s litigation alleges that Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and GMAC pervasively used fraudulent documentation in the foreclosure process, foreclosed without showing they owned the actual mortgage, and failed to uphold loan modification promises to borrowers in Massachusetts.

Chase issued a statement expressing disappointment by the Massachusetts suit. The other bank defendants could not immediately be reached for comment.

The suit also names Mortgage Electronic Registration Systems, Inc., a company formed by the banks more than a decade ago to track ownership changes on millions of mortgages. MERS is already the subject of several suits by borrowers alleging it has wrongly filed foreclosures against them.

After Coakley's suit was filed, MERS said in a statement that the company "has not engaged in or facilitated any violation" of Massachusetts law.